Some of these cars have terrible repair records, according
to Consumer Reports, and that will discourage most used-car buyers.
Some of them, such as the Mercury Sable, are reasonably reliable
favorites in the rental market. Others are discontinued models,
such as the Chevy Cavalier. Or they just aren't very sexy and never
caught on, such as the Mitsubishi Diamante. These cars are worth
considering if you're shopping for a vehicle that you aren't likely
to resell anytime soon.
Another one of the ways in which
low residual value can have a direct impact on your pocketbook
is when you lease a car. The amount of a lease payment directly
reflects how much the car will be worth at the end of the lease.
Banks that issue lease contracts set residual values
based on mathematical analysis of past model data and predictions
of future consumer tastes. When you lease a car, you pay for the
portion of the car's value that you will use. For instance, if
you lease a $20,000 car for three years and the residual value
at the end of the lease is $10,000, then you will use 50 percent
of the car's value. Your payments will be $10,000 divided by 36
months or $277 a month (plus tax, interest, etc). If the car loses
70 percent of its value or $14,000 over three years, then your
payments will be $388 a month, a budget-busting difference.
Residual value isn't the only factor, but it's always
wise to consider it when you shop for a leased car. You'll often
pay less when you lease a well-regarded, reliable and stylish
car than you will if you settle for a vehicle that has less going
for it.
While residual values aren't negotiable, sometimes
a dealer will artificially inflate the residual value in order
to offer a low lease rate and move an overstocked model off the
lot. These are known as subvented leases and can be exceptionally
good deals. But beware. Should you fall in love with a car that
has a subvented lease and decide to buy it at the end of the term,
the dealer probably will want you to pay lots more for the car
than you would for another identical vehicle sitting on his lot.
And, of course, it's also wise to know about residual
value if you are buying outright, because the resale value of
a vehicle that retains its residual value will almost certainly
be higher.
Better equipped, better residual
value
How well-equipped a car is also affects its residual value says
Kelley Blue Book's Vogelheim.
He says used-car buyers expect certain features,
such as power windows and doors, power door locks, tilt wheel
and cruise control. If your car doesn't have these things, it
will sell for significantly less in the used-car market. Other
factors include color.
Unusual hues or anything else more vibrant than a variation on
silver, white, black, moss green or red, turn off used-car buyers.
And this is another case where bigger is better.
Cars with big, powerful engines resell better than those with
small ones.
The Automotive Leasing Guide Black Book calculates
residual values on all models each quarter. Your bank undoubtedly
has a copy; your library may. You can also sign in as a guest
at its Web
site and find some information on certain models.
-- Posted: Feb. 15, 2005
